Bond bears return on hopes of Greece deal

Bond bears were having a picnic Tuesday on the promise of a Greek debt deal, while a megabond offering from Heinz pressured U.S. Treasury prices.

Strategists said the early move higher in yields looked to be a reversal of short-term bullish momentum, which had been driving yields lower. The move faded somewhat in late-morning trade, as buyers stepped in and U.S. yields fluctuated.

But the damage was done. "The technicals still look poor. It's a nice little turnaround, maybe it's covering into the auction. Maybe the need or desire to hedge today's (Heinz) issuance was done by 10 a.m., and once it was done, it was the only source of selling," said David Ader, chief technical strategist at CRT Capital. "Technically, it does not trade that well."

Orders for the Heinz bonds, which ranged from two-year maturities to 30-year, were reported to be near $17 billion, and the deal could raise as much as $11 billion. The bond market was also primed for a $26 billion two-year auction at 1 p.m. The two-year was well-bid and the yield was 0.692, the highest auction rate this year.

The 10-year Treasury yield crossed the 2.40 percent level, a key technical point. It was at 2.37 percent midday. The 30-year reached 3.22 percent, its high for the year, before trading back at 3.16 percent.

"It seems that near-term momentum and some of the stochastic indicators in the near term are pointing towards the top of the bear channel. Yields we think could go to 2.5 percent in 10s. We'll see that before we get back to 2.25," said Edward Acton, rates strategist at RBS. "In 30s, we have a pretty well-defined support level right at 3.05. After bouncing off that, we'll probably test just below 3.30."

Ader said the bearish move Tuesday morning could last for awhile but could turn if there's more weak economic data or German yields steer the market lower again. German bund issuance is expected to be inadequate to meet demand this summer, in part because of the European Central Bank's bond-buying program. That should drive yields lower, and U.S. yields could move in tandem, he said.

"As I look at the charts in here, it looks like the near-term momentum shifted, and you're supposed to take a look at that 2.50 level (on the 10-year)," Ader said. He added his premise could be wrong if he underestimated the impact of the corporate issuance on the market Tuesday.

Corporate issuance has been a factor in the bond market, with new issuance resulting in selling in Treasurys as investors hedge or make way in their portfolios for new corporate bonds. The issuer for the Heinz deal is Kraft Heinz Foods, and the offering is expected to help fund the pending $46 billion merger between Heinz and Kraft.

"We're bearish today because we have this Greece deal, which has become something of a benchmark for short-term price influences," Ader added.

With Greece out of the way, U.S. Treasurys could begin to focus on the prospect of Fed rate hikes, and that means heightened focus on economic data.

Durable goods orders came in weaker than expected on Tuesday but new home sales were stronger.